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Following Chang, Lai, and Chang(1999), this report discusses the policy assignment problem with efficient wage-employment bargaining under perfect capital mobility. Whether it can rescue the default of proposed by Ramirez (1988) that coordinate between fiscal and exchange rate policies to achieve given desirable targets. The conclusion of this report is as follows¡G Under fixed exchange rates with perfect capital mobility, however, an appropriate mixture between monetary and fiscal policies can dynamically adjust to attain simultaneously the internal goal of desired output and the external goal of official foreign reserves. It's conclusion as the same as proposed by Lai, Chang, and Chu (1990). But more importantly, it can rescue the default of proposed by Ramirez (1988) that coordinate between fiscal and exchange rate policies to achieve given the internal and external goals. Accordingly, we can understand that efficient wage-employment bargaining in the labor market plays a curial role in assessing the assignment or policy instrument to targets. Furthmore, this report extends the analysis results under fixed exchange rates shifting to the system of a managed floating regime. It can find that the policy assignment can still achieve given desirable target. Consequently, this report provides further evidence that the efficient wage-employment bargaining is very important for assignment problem.

The thesis has closely examined that an important shortcoming of the Keynesian analysis is the neglect of potential tax-induced aggregate supply effects, and therefore, just as Marshall's proverbial scissors with one "misplaced" blade, the government cannot make proper policy decision. Hence, this paper incorporates the tax-induced aggregate supply effects into the analysis. When a model does not include the supply-side effects of tax-induced, it degrades to a Ramirez (1986) and cannot be sued for policy assignment. On the other hand, a model incorporates the tax-induced aggregate supply effects remedies the flaws in Ramirez (1986) and can be used for appropriate policy assignment.

The presented thesis has closely examined the discussion on policy assignments that are restricted on an open macroeconomic model; very little reference has focused on a closed macroeconomic model. As we know, Ramirez (1986) is the first person who has applied policy assignment to a closed macroeconomic model. But Chang and Lai have clearly proved that Ramirez's model is not appropriate for policy assignment, and a way to redeem the problem is to introduce policy instrument to aggregate supply side. Also, this thesis is going to focus on, instead of introduced the policy instrument to aggregate supply side, use system endogenous on aggregate supply function. Could this kind of correction redeem the flaws made by Ramirez? Hence, this thesis would apply the reality intertemporal substitution effect of labor to subsume an aggregate supply side, then discuss the relationship on policy assignment that is between policy instrument and policy target that would derive the conclusion as below: When a model does not include the intertemporal substitution effect of labor, it degrades to a Ramirez's model (1986) and cannot be used for policy assignment. On the other hand, a model including intertemporal substitution effect of labor remedies the flaws in Ramirez's model (1986) and can be used for appropriate policy assignment assuming that government spending is in complement with private spending.